The Facts

Dispute concerning mortgages and loan documents with allegedly forged signatures

A company was established in 1991 and operated a paintball field on a property in Sydney. In 2004 and in 2009 the company entered into loan agreements with a bank. The amounts totalled approximately $100,000, with a further advance of $50,000, and two overdraft facilities of $15,000 and $20,000.

The company had two directors, who had both personally guaranteed an overdraft facility provided by the bank in 1996, and this same guarantee was used as security for both the 2004 and 2009 loans.

Company defaults on loan and bank commences legal proceedings

The bank commenced proceedings against the company as principal debtor, and against the two directors under their personal guarantees, following a default by the company.

One of the directors claimed that although he was liable to the bank under his guarantee for the sum outstanding from the 2004 loan, he was not liable in respect of the 2009 loan – which had subsumed the 2004 loan – as he had not signed the letter of offer, the letter of acceptance or the guarantee acknowledgement for the 2009 loan. He contended that the signatures on those documents were not his.

case a - The case for the bank

case b - The case for the dissenting director
  • We now concede that the signatures on those documents were not those of the director and were forgeries. However, we did not know this at the time the funds were advanced.
  • We dealt with the company via the other director, who was the intermediary between us and the company and acted as the company's agent, and our staff had no reason to suspect that there was anything irregular about the 2009 loan documents.
  • ASIC records showed the other director was properly appointed and so we were entitled to assume that he had authority to act and that the documents were properly executed.
  • Further, the original guarantee provided by the directors in 1996 was an unlimited guarantee, which means that in the event of default by the company they must pay all the money owing at that time.
  • The company has defaulted and both directors are personally liable for the outstanding debt.
  • I agree that the signatures on the 2004 loan and the document to increase the overdraft to $20,000 were mine, and that I was therefore liable to the bank under the guarantee for those loans.
  • However, any liability I might have had under the 2004 loan was discharged when the company entered into the 2009 transaction.
  • I believed the transaction in 2004 was a one-off loan and no funds would ever be redrawn on it.
  • The 2009 transaction, the further overdraft of $15,000 and the various redraws made by the company all occurred without my knowledge or consent. I was not a party to the 2009 transaction.
  • The bank's officers were wilfully blind to the possibility that my signature had been forged and therefore the bank cannot rely on the assumption that the 2009 documents were properly executed.
  • The bank should be able to recover the outstanding debt from the company and the other director, but not from me personally.

So, which case won?
Cast your judgment below to find out

Vote case A – the case for the bank
Vote case B – the case for the dissenting director

Geoff Roberson
Business disputes and litigation
Stacks Champion

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.